INDUSTRY INSIGHTS: Can Investors Really Profit From An Independent Film?

After discussing last week Where To Find Investors For Your Film, the next question you are probably asking yourself is - how do investors actually profit on a film? I mean, once you find investors, you'll need to pitch your project to them probably in the form of a business plan. So it makes sense that you need to know how they will profit so that can be a part of the recoupment strategy in your films's Business Plan right?

Well it probably comes as no surprise to you that profiting on a film is actually a rare occurrence, especially when you don't have a micro-budget film. It takes a solid finance plan and usually a few other forms of financing (other than private equity) to create a solid business plan for investors showing recoupment and profitability.

For example, when I have filmmakers come to me and say they have a budget of $3-$5 million and their finance plan is to raise 100% private equity, I wince. Why? Because it's almost impossible to make that back from the current market! (as we speak, even Sundance acquisitions aren't that high!)

And this myth of box office back end? Come on.... you know me by now! That shouldn't even be part of the discussion!

So let's get down to it then - where DO investors profit? Turns out there are actually a couple ways...

1. One way that investors can profit is by acting as your bank essentially and cash flowing pre-sale deals. It's a low risk, low reward return of about 10%. These deals are very common but require pre-sales that cover the majority of the budget. These deals can also be preferable to a producer as you don't need to pay for a bond like you would if you went to a traditional bank to cash flow your pre-sales.

2. Another way I've seen investors profit is by providing equity investment on a film that already has a few pre-sales in place (thus been somewhat vetted by the market) and the investors in turn are essentially financing 'unsold territories.' Once those territories are sold after the film is completed, the investors see their profit. This is much higher risk/higher reward obviously and unfortunately what usually happens is the unsold territories end up selling for FAR less than what the sales agents purported, and no money is returned to investors. (these are the law suits you read about in the trades!)

But every once in a while an investor hits it big with one of these deals and so that's what keeps this type of financing alive - the mere potential for higher rewards no matter how slim the chances are.

3. And finally, there's those odd stories once in a while of investors who really took a risk and invested in a film without pre-sales, without vetting from the market, and the film hits it big either with distribution deals, self-distribution success, or a combo of both. And this does happen, it's just extremely rare and when it does work, it's usually at the micro budget level where there's more room for upside.

So how does this effect you? Well for starters I would get clear on what your financing plan is and if you're planning on pitching investors for a 100% private equity finance plan, have a low enough budget to where their chances of recoupment and profit are higher.

If you've got a budget of $500K or higher, I would work out how you can supplement the private equity portion of your finance plan with market-based financing like pre-sales, tax incentives, etc. so to mitigate the investors' risk.

Now over to you? What is your current finance plan and how will your investors profit? What is your pitch to them in your Business Plan? And if you're an investor, how have you profited from films in the past? Please put your comments and questions below!